Invisible speculators return to the real estate market: artificial price warns

Earn round amounts

Swedbank economist Nerijus Mačiulis told Delfi that growth in house prices has accelerated even more today, which is determined not only by healthy and rational factors, such as population growth in large cities, the rising wages, rising employment, falling interest rates, but also one. something that has not been seen in the market for many years.

According to him, the recent rapid and steady rise in property prices has created a favorable environment for the return of speculators. As he said, they are mostly natural persons who have financial capital, know the trends in the real estate market and have a lot of courage.

As explained, the scheme works in such a way that said people sign preliminary housing purchase and sale agreements with developers of real estate projects, that is, they reserve homes, pay the developers a certain guarantee, which can be both a percentage of the total of the house price and a fixed amount of 4-5 thousand Eur, and after a while the contract, reservation, resale and assignment to third parties, although at a higher price.

“In this process, final home buyers pay a small percentage premium, which is taken by intermediate intermediaries (speculators – ed.), Many times without paying any taxes, because their transactions are not visible in any registry.

In addition, such a process creates a distorted image of the balance of supply and demand in the market, which increases the fear of buyers of not being able to buy and further twists the spiral of price growth, ”said N. Mačiulis and gave a comment. example.

“Let’s imagine that the average price of an apartment in Vilnius is 100 thousand. Eur and looking at the price growth trends of the last years, 10 percent. The price growth during the year is normal.

Suppose you pay 5,000 to buy a picture. Housing reserve fee, and after a year when the house is built, I can sell the reserve and have 10 thousand. profit.

You invest 5 thousand, you earn 10 thousand. This is a great market, a great medium for those who have the information, the financial capital, the courage, but it is not a healthy phenomenon for the market ”, he commented.

According to the economist, if we talk about those phases of the cycle, when the market lacks liquidity and buyers, these people can really fill the gaps.

“They give developers the opportunity to start projects, but the problem is that as long as there is not a thriving real estate market, with constant price growth, there will be no such speculators.”

From 2010 to 2015, when they were needed to fill the market, there were none, but they became more active last year and this year. These people take advantage of the current market situation and, having money, reserve a large part of their home and then resell it, ”he said, adding that this generally reduces the affordability of the home.

N. Mačiulis assured that he supports the proposal of the Bank of Lithuania to create a register of preliminary agreements, which would allow not only a more precise assessment of the scope of such speculation, but also an adequate taxation of the activities of these people.

“I think another measure should be considered immediately: a tax on transactions, including preliminary sales contracts, if this is not, for example, the first transaction in a year,” he said.

The economist could not say how many speculators there might be. As he emphasized, this requires a new registry of framework contracts.

Developers: these cases are isolated

Mindaugas Statulevičius, president of the Lithuanian Real Estate Development Association, said that speculators were active during the last economic boom, in 2005-2007, but then developers did not have certain self-regulatory mechanisms, but now, as he emphasized, the situation is different.

“Now, most developers have big restrictions for those who want to make money this way.

There is an alleged fine. If one person transfers the contract to another person, he pays 4-5 thousand. Eur fine and this is foreseen in the framework agreement. Again, the contract stipulates that the transfer of the contract is prohibited and, if the transfer is desired, the contract must be terminated and the process must be restarted.

We, the association, do not see any problems here, perhaps there were isolated cases that occurred in some projects last year, but the market resolved everything quite quickly.

It should be understood that speculators trade with the profits of the developers themselves, it is not beneficial for the developer that if the market is active, others would gain from the increase in value ”, said M. Statulevičius, adding that if there are such people today, they are isolated.

“There may be isolated projects that are built on a farm that require advance booking contracts, this may be another case, but it is no longer a market problem or a common occurrence,” he clarified.

Speaking about the registration of preliminary contracts that may arise, M. Statulevičius assured that he does not see much benefit here.

“I really don’t know why it should be done, what would be the reason the company would hire a man to put the contracts together, because the bigger developers are now selling after 30-50 a month. It would take 2 days. And what would that record give?

It is trying to say that there is no exact information on how much is reserved before the information reaches the Registration Center, so we suggest using market-based tools that monitor all portals and record how many houses are reserved, how many are sold. and publish your details accordingly.

And no additional burden should be imposed on companies or individuals. You have to understand that each ticket will cost money, “he said.

Proposes to change the law

Currently, the legislation that regulates the sale of future homes or residential flats establishes that pre-contracts can be registered, but this is not an obligation and in fact no one makes use of this option, since the rights and obligations derived from the contract do not arise. . until the transaction is recorded, said Jokūbas Markevičius, Director of the Financial Stability Department of the Bank of Lithuania.

According to him, the obligation to register preliminary home purchase agreements would bring additional transparency to the market and allow a more detailed assessment of the risk of unsustainable growth of the primary housing market.

“The stable and balanced development of the residential real estate market is an important condition for the protection of both the population that has made financial commitments and financial stability.

In recent years, the importance of the primary residential real estate market in Lithuania, and especially in Vilnius, has increased, however, there is relatively little information available about it. For example, it is not known how much of the housing in Lithuania is bought “from drawings” or without a building permit. In addition, it is not known how many reservations are false, that is, they are shown as sales without pre-contracts, or how many reservations are subsequently transferred to other people at a higher price, although we hear that this type of phenomenon does occur.

In addition, we do not know what the sale prices are in the primary market, the records about them appear after the house is built and registered in the Registry Center, that is, we only see the delayed data.

The lack of real-time data allows speculative debates in the public sphere that are not based on objective information that covers the entire market and, therefore, can contribute to the formation of unreasonable expectations. Therefore, we believe that the preliminary contract registration would provide more clarity to all participants in the primary residential real estate market, allow a faster assessment of emerging risks, and be in line with good practice in other developed countries when contracts are officially register. “he said.

In light of this, LB submitted a proposal for the mandatory registration of preliminary home purchase agreements for consultation with other relevant institutions, but there are no amendments to the project yet.

“The exact wording of the bill will continue to depend on inter-institutional discussions, but we tentatively imagine that this could be the addition of a new paragraph to article 6,401 of the Civil Code.

It would establish that the contract of sale of a future house or residential apartment must be registered, and the rights and obligations of the parties under the contract arise only from the moment of its registration, ”explained J. Markevičius.